Definition ∞ On-chain risk building refers to the accumulation of various indicators on a blockchain that suggest an increasing likelihood of future market instability or price correction. These indicators can include excessive leverage, concentrated supply in short-term holders, or unsustainable funding rates. It signals an elevated potential for adverse market events.
Context ∞ Monitoring on-chain risk building is a critical practice for assessing the health and sustainability of digital asset markets. Analysts use these metrics to identify periods where market participants are taking on excessive risk, which often precedes significant price downturns. Understanding these warning signs is vital for proactive risk management and informed investment decisions in the volatile crypto environment.
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